Market Psychology

DEFINITION of 'Market Psychology'

The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.

BREAKING DOWN 'Market Psychology'

While conventional financial theory describes situations in which all the players in the market behave rationally, not accounting for the emotional aspect of the market can sometimes lead to unexpected outcomes that can't be predicted by simply looking at the fundamentals.

Technical analysts use trends, patterns and other indicators to assess the market's current psychological state in order to predict whether the market is heading in an upward or downward direction.

RELATED TERMS
  1. Trading Psychology

    The emotions and mental state that dictate success or failure ...
  2. Market Sentiment

    The overall attitude of investors toward a particular security ...
  3. Fear And Greed Index

    An index developed and used by CNNMoney to measure the primary ...
  4. Sentiment Indicator

    A graphical or numerical indicator designed to show how a group ...
  5. Loss Psychology

    The emotional aspects associated with investing and the negative ...
  6. Rational Behavior

    A decision-making process that is based on making choices that ...
Related Articles
  1. Trading

    The Financial Markets: When Fear And Greed Take Over

    If these unpleasant emotions are allowed to influence your decision-making, they may cost you dearly.
  2. Trading

    The Importance Of Trading Psychology And Discipline

    Find out how investing success can be more about your mindset and less about the markets.
  3. Trading

    Forex Market Sentiment Indicators

    Sentiment Indicators are another tool that can alert traders to extreme conditions.
  4. Trading

    10 Timeless Rules For Investors

    Find out what most investors are doing wrong, and how you can do it right.
  5. Trading

    Behavioral Finance: Key Concepts - Mental Accounting

    By Albert PhungKey Concept No.2: Mental AccountingMental accounting refers to the tendency for people to separate their money into separate accounts based on a variety of subjective criteria, ...
  6. Trading

    Behavioral Finance: Introduction

    By Albert PhungAccording to conventional financial theory, the world and its participants are, for the most part, rational "wealth maximizers". However, there are many instances where emotion ...
  7. Managing Wealth

    Investing In Crisis, A High Risk-High Reward Strategy

    The financial crisis of 2008 and the great recession that followed is still fresh in the memories of many investors.
  8. Trading

    Investors Intelligence Sentiment Index

    This indicator can give a overall sense of bull and bear forces - learn what it is and how it's constructed.
  9. Managing Wealth

    The Casino Mentality In Trading

    Many new traders treat the market like a casino, placing unwise bets and hoping for the big win.
  10. Financial Advisor

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED FAQS
  1. How can I tell if I'm an emotional investor?

    Successful investors possess the important trait of emotional stability, which means that they base their investment decisions ... Read Answer >>
  2. My son's income has reached the level to prevent Roth IRA Contributions. Can Buy/Sell ...

  3. What's the difference between consumer confidence and consumer sentiment?

    There isn't a difference between consumer confidence and consumer sentiment. Both terms are used to refer to the degree of ... Read Answer >>
  4. What do traders determine when there is divergence between an oscillator and a moving ...

    Understand the basics of divergence between a moving average and an oscillator and how this signal is interpreted by traders ... Read Answer >>
  5. What are the Registered Retirement Savings Plan (RRSP) contribution limits?

    Review annual contribution limits for Registered Retirement Savings Plans and figure out how much you can invest for your ... Read Answer >>
  6. Why is the Breadth Indicator useful for tracking the overall economy?

    See how analysts might use technical breadth indicators to judge the health of the economy as a whole, and learn why one ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center